Single Monopoly Profit and Self-Preferencing by Dominant Platforms

Abstract

There are two “Big Tech” bills currently being considered by Congress (the American Innovation and Choice Online Act and the Open App Markets Act) whose purpose is to limit competitively harmful “self-preferencing” practices by dominant tech platforms. A natural question regarding these practices is whether the “Single Monopoly Profit” (SMP) theory applies to them, under which it is impossible (in the orthodox version) or at least unlikely (in more moderate versions) for such practices to be both competitively harmful and profitable for the firms engaging in them. In this article I lay out the SMP theory as it applies to exclusive dealing (the context in which it is most famously applied), and then discuss the “post-Chicago” economic literature laying out a number of realistic settings in which the SMP theory fails and competitively harmful exclusion is in fact profitable. Next I argue that this post-Chicago literature does not go far enough, as it does not take note of the fact that the dominant firms can choose which practices to engage in, which means that even if there are only a small number of exclusionary practices (or combinations of practices) that are both harmful and profitable, the dominant firms will have a strong incentive to identify them. Finally, I discuss the SMP theory as it applies to self-preferencing, and conclude that the theoretical mechanisms underlying the SMP theory largely do not apply to self-preferencing. Ruling out this theoretical defense of self-preferencing tends to support the conclusion that they should be limited by law.

Keywords: Single Monopoly Profit, One Monopoly Profit, Self-Preferencing, Exclusive Dealing, Exclusion

JEL Classification: L12, L42, L86